Brazilian Real: Brazil election shock keeps volatility high – MUFG

MUFG’s Halpenny warns that Brazil’s election-driven market sell-off could fuel further volatility, while a right-leaning Congress may force President Lula da Silva to compromise on policy. Investors could still price in worst-case outcomes, although earlier position liquidations suggest limited contagion across Latin American markets.

Brazil shock but limited LatAm contagion

"The scale of the move is still significant and marks the potential for further volatility in Brazil markets over the coming days."

"This could force Lula to compromise in order to make any progress with policy."

"But that will not become clear immediately and hence investors will be quick to assume the worst leaving the markets vulnerable."

"What does look clear from the initial reaction is that this is being viewed understandably as very Brazil-specific with little sign of contagion in the region."

"However, the limited sign of contagion reflects the fact that there has already been a position clear-out."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)